Herald Tribune: Dan Gudema of StartupPOP on How to Value a Business

By Dennis Zink.

Recently, I was asked about valuing a relatively new business entity for the purpose of selling equity to potential investors. The all-important question was: “What is the value of our new business?”

How to value a new business

I have written about this topic in the past, and the answer to selling equity in any business is always the same. The short answer is … drum roll, please … The value of a business is determined when a willing seller agrees (without duress) to a price and terms with a willing buyer.

This column could be over now if it was that simple. It really is simple, but not that simple.
Some of the variables to consider:

1. How new is the business?
2. Has the business had sales? If yes, how much? Are sales increasing?
3. What is the market potential for this businesses’ product or service?
4. What is the potential for profit, both short- and long-term?
5. Is the business scalable?
6. Has the business developed a sales following, repeat business, garnered traction?
7. How much growth (month over month) has the business experienced?
8. Are there any barriers to entry, and what are they?
9. Are there competitors, how many, and what have they sold for?
10. What are the risk factors?
11. How strong and experienced is the management team?
12. What is the likelihood of investors getting their money back with an acceptable return, and by when?

According to Dan Gudema with StartupPop.com, “For Web-based tech startups, unique visitors, email addresses in a database and other tangible assets make sense in addition to revenue. I am a partner in one Web business with 50k monthly visitors and 300,000 email addresses. To buy that on a one-year basis in this industry would cost $2 million to $4 million. That does not include a valuation on revenue.”

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